Koch & Kruger Brokers CC and Another v Financial Sector Conduct Authority and Others [2023] ZACC 27ost

Separation of issues in judicial review proceedings

Author

Ross Shepstone
November 23, 2023

In August 2008 and September 2009, George Baben and Lucille Miriam Baben (the fifth and sixth respondents) invested a total of R780,000 in two property syndication schemes through Sharemax Investment (Pty) Ltd (Sharemax) based on the financial advice provided by Deon Kruger, who operated through Koch & Kruger Brokers CC (the applicants).

The Babens received monthly interest payments until August 2010. However, the South African Reserve Bank (SARB) deemed Sharemax's operations unlawful and instructed the company to refund all investors. Consequently, the monthly payments stopped, and the investment schemes collapsed, resulting in financial losses for the Babens and other investors.

In December 2012, the Babens lodged a complaint against the applicants with the Ombud for Financial Services Providers, alleging that the applicants had misrepresented the investment as sound and risk-free and had failed to provide them with adequate documentation to assess the investment. The Ombud upheld the Babens' complaint and awarded them compensation of R780,000 plus interest. The Ombud found that the applicants had been negligent in their advice and that the Babens' loss was a direct result of the applicants' breach of contract.

The applicants sought reconsideration of the Ombud's determination by the Financial Services Tribunal, but leave to appeal was denied by both the Ombud and the Chairperson of the Tribunal. Subsequently, the applicants initiated review proceedings in the High Court, seeking to set aside the Ombud's determination and the Chairperson's decision.

Prior to the High Court hearing, the parties agreed to determine a separated issue regarding whether the Babens' loss was caused by the applicants' breach of contract or by the SARB's intervention. The High Court found in favor of the Babens, attributing the loss to the applicants' breach of contract.

"[29] However, this is all by the way, because the separation on which the parties and the High Court embarked was utterly misconceived. I pass over the question whether a separation of issues is permissible in motion proceedings. Assuming that a separation was procedurally permissible, the parties in the High Court seem to have overlooked that the case was a review directed at decisions of the Ombud and the Chairperson, not an action for damages by the Babens against the applicants. Even in an action for damages, I doubt that a separation would have been appropriate, because there were contested facts about the mandate, the interactions between the Babens and Mr Kruger, the legality of the Sharemax product and its riskiness. Findings on those contested matters could be expected to have a bearing on whether the SARB’s action was an intervening event breaking the chain of causation between the alleged negligent advice and the Babens’ loss."

Constitutional Court per Justice Rogers

The ratio decidendi of the Constitutional Court's decision in Koch & Kruger Brokers CC and Another v Financial Sector Conduct Authority and Others [2023] ZACC 27 is that the separation of issues in a judicial review proceeding was procedurally and substantively misconceived, and the High Court's determination on the separated issue of causation was irrelevant to the grounds of review under the Promotion of Administrative Justice Act (PAJA).

Litigants and courts must carefully consider whether it is convenient to adjudicate a separated issue. If it is, the parties must precisely formulate the separated issue, and judges must ensure that the separation is convenient and that the issue has been properly defined. This should be recorded in an order made by the Court in terms of rule 33(4) of the Uniform Rules. The court referred to the following cases:

  1. Osman Tyres and Spares CC v ADT Security (Pty) Ltd [2020] ZASCA 33; [2020] 3 All SA 73 (SCA);

  2. Petropulos v Dias [2020] ZASCA 53; 2020 (5) SA 63 (SCA); [2020] 3 All SA 358 (SCA);

  3. Iveco South Africa (Pty) Ltd v Centurion Bus Manufacturers (Pty) Ltd [2020] ZASCA 58; and

  4. Denel (Pty) Ltd v Vorster [2004] ZASCA 4.

In a judicial review, the court's role is not to determine the merits of the complaint itself but to assess whether the administrative decision-maker (in this case, the Ombud) reached their decision without committing a reviewable irregularity. The High Court's own view on the merits of causation is not decisive of any issue in the review.